Wednesday, July 24, 2013

China: Beijing's Largest Wind Manufacturer Indicted in US Over Trade Secret Theft

According to http://www.eenews.net,
China's largest wind energy manufacturer, Sinovel Wind
Group Co., has become the public and notorious face of a growing contention between the US and China the
United States over intellectual property
and the legal use and transfer of renewable energy goods and services.

Sinovel, which once postured that it would push US power systems giant
General Electric Co. into third place for global wind turbine
manufacturing, has now been indicted in the US District Court in Madison, WI on charges that two Sinovel employees and a Serbian co-conspirator now face charges in US federal court to steal proprietary
software from a US firm that was used to improve the efficiency of
Sinovel wind turbines.

The 11-page grand jury indictment, filed on June 27, alleges that
Sinovel, which until recently maintained a US headquarters in Houston,
conspired to steal property valued at more than $800 million from AMSC
of Devens, MA, under a plan hatched by two midlevel Sinovel
executives in China and a Serbian co-conspirator who was employed by
AMSC in Austria.

The case was initiated in Wisconsin because the software was
allegedly downloaded from a computer at AMSC's Middleton, WI office.

Federal arrest warrants for the three named defendants were issued
with the indictment, but it remains unclear as to whether any of them will ever be arrested because all are foreign citizens living abroad. That being said, the US Attorney in Madison will no doubt issue arrest warrants at all US ports of entry as well as through INTERPOL.

According to AMSC and the Justice Department, the alleged conspiracy
and theft occurred between January 2011 and December 2012, around the
time Sinovel abruptly ceased payment and refused "substantial shipments"
of proprietary software and equipment developed by AMSC and used to
regulate the flow of electricity from Sinovel wind turbines to
electricity grids.

At the time, Sinovel owed AMSC more than $100 million for "software,
products and services" previously delivered and had contracted to
receive about $700 million more in shipments from AMSC.

COMMENT: In retrospect, many US firms have learned the hard way, that particularly where proprietary data is concerned, payments owed by Chinese companies should always require payment in advance.

Where Chinese firms are indirectly or indirectly involved, Western companies should, as a matter of written policy, polygraph ALL staff in order to neutralize foreign efforts to steal proprietary trade secrets. This investigative effort should also include a thorough and comprehensive background investigation with emphasis on staff that are living beyond their means.

Months later, AMSC realized that Sinovel had gained access to and
was actively using stolen AMSC trade secrets and intellectual property
illicitly supplied by Dejan Karabasevic, the Serbian co-conspirator, who had worked for the
company's Windtec division in Klagenfurt, Austria, and who had access to
the proprietary software developed and stored on a computer in an
office in Middleton, WI, according to the company's statement.

As part of a subsequent investigation, AMSC discovered that its stolen
technology had been used in four wind turbines built by Sinovel in
Massachusetts. AMSC's president and CEO, Daniel McGahn, described the
unauthorized technology transfer as "criminal acts [that] have led to
significant financial harm to AMSC, its employees and their families as
well as its shareholders."

A grand jury in Madison agreed, delivering indictments against
Sinovel Wind Group, its two executives, Su Liying and Zhao Haichun, and the former AMSC manager, Karabesevic, on charges of theft of trade
secrets, conspiracy to commit trade secret theft and wire fraud.

In a statement, acting Assistant Attorney General Mythili Raman of
the Justice Department's Criminal Division said the conspiracy and theft
were part of a plan hatched by Sinovel's executives and Karabesevic to
steal "proprietary wind turbine technology from AMSC in order to produce
their own turbines powered by stolen intellectual property."

According to the indictment, Sinovel surreptitiously "recruited Karabasevic to leave
AMSC Windtec and join Sinovel, and to secretly copy intellectual
property from the AMSC computer system." AMSC officials have said the
material evidence is bolstered by a confession from Karabesevic, emails
between Karabesevic and Sinovel's executives, and contracts prepared by
Sinovel that agreed to pay the former head of AMSC Windtec's automation
engineering department roughly $1.7 million over a six-year period after
he joined the Chinese firm.

Last week, attorneys for Sinovel filed a motion to quash the grand jury subpoenas, according to the Milwaukee Journal Sentinel.
Other media reported that Sinovel, which operated ten subsidiary
companies outside China, told the Shanghai Stock Exchange that it would
cancel its subsidiary activities in the US, Canada, Belgium
and Italy.

In a statement detailing the firm's relationship, AMSC officials say
they began working with Sinovel in 2005, shortly after the Chinese firm
was established. AMSC, then called American Superconductor Inc.,
provided wind turbine design and engineering services as well as power
control systems to Sinovel, helping foster the company's rapid growth
into a global competitor.

Six months after Sinovel severed its ties to AMSC in March 2011, the
US company filed four legal actions against its former partner with
the Chinese government, alleging the illegal use of AMSC's intellectual
property and seeking more than $1 billion in deliveries and damages. The
company also asked Chinese authorities to bring criminal charges
against those responsible for the intellectual property theft. Yet nearly two years later, Chinese police have yet to initiate their investigation.

Based on China's apparent unwillingness to investigate or prosecute
Sinovel, AMSC said it has asked the Obama Administration to re-evaluate
the United States' trade relationship with China.

I continue to be amazed and disappointed that the Federal government continues to tolerate wholesale trade secret theft from US and Western countries, losses estimated to be at $400 billion, with few consequences for the Chinese government.

If the Obama Administration offers no solution to this gross infringement on trade secret property rights, then perhaps they are a source of the problem.

Ironically, the majority of convictions under the Economic Espionage Act of 1996 (EEA), as amended, have involved Chinese nationals or their representatives.To make matters worse, naturalized US citizens who are ethnic Chinese, and who owe their allegiance to the US, continue to be defendants in EEA indictments and criminal complaints. The sad part is that these same US citizens truly believe they are doing nothing wrong.

About Me

I retired from the US State Department in April 2006, after a career as a special agent, Senior Regional Security Officer (SRSO), director of training, chief investigator of the Cyprus Missing Persons Program, director of security of the U.S. Agency for International Development (USAID) and as a senior adviser in the Office of Anti-Terrorism Assistance.
My book, STAYING SAFE ABROAD: TRAVELING, WORKING AND LIVING IN A POST-9/11 WORLD was published in May 2008.
A complete update of STAYING SAFE ABROAD 2015, will be release during early 2015 for the iPad, Kindle and Nook and other e-readers.
I am a former Federal Firearms Dealer (US), a certified NRA pistol instructor and a certified NRA Range Safety Officer.
My career has also included 15 years as an international security consultant; for ten years I served as the security adviser to the Inter-American Development Bank.
I additionally, served six years in the Marines, which included combat service in Vietnam.
I am available for operational assignments, lecturing opportunities and in providing security solutions anywhere in the world.